Economic Data and Market Highlights
Global equity markets continued to advance with the S&P 500 rising 1.47%. Developed markets rose 2.76% with Japanese equities increasing 2.06% and German equities advancing 3.48%, both in USD terms.
The Fed’s July meeting minutes were released Wednesday this week which revealed that Federal Reserve officials considered an interest rate cut but ultimately decided to maintain the current rates, while signaling that a rate reduction in September was increasingly likely. The minutes showed that most participants believed easing policy would be appropriate if economic data continued as expected, driven by progress on inflation and concerns about recent labor market revisions. While markets initially reacted negatively, recent economic data assuaged fears, with more recent labor data showing that jobless claims are inching towards normalized historical levels, and a September rate cut is now widely anticipated as the Fed monitors inflation and employment trends closely.
Canadian National Railway (CNI) and Canadian Pacic Kansas City (CP) had shut down due to an unsuccessful negotiation with a major labor union locking out nearly 10,000 workers. The two rail networks said south of the boarder they will continue to operate but industry groups fear that the stoppage will impact goods and commodities across north America. CNI’s and CP connect south of the Canadian border to the US and Mexico. The network intersects with BNSF Railway, Union Pacific, Norfolk Southern, and CSX which helps move billions of dollars of goods and materials across north America. CNI’s path stretches south to New Orleans through the middle of the country while CP’s route links the US ports of Corpus Cristi, New Orleans, Gulfport, and extends further south to the ports in Mexico like Tampico and Lazaro Cardenas. About one third of the goods moved by these rail lines crosses the United States boarder. Most of the goods are used by companies and producers in the Midwest both exporting and importing goods to Canada as it can be a quicker way to trade goods versus overseas to Asia or Europe. Union Pacific warned that a simultaneous stoppage would have devastating consequences to both the Canadian and United States economies. Moody’s said the stoppage could cost over $251.14 million per day and dozens of groups miners, farmers, exporters, fertilizer producers, want their sectors would face clipping supply-chain delays, increased costs, and potential shutdowns.
The good news is the Panama Canal has almost fully recovered from pre-drought levels which impacted transport last year. A recent ruling by the Panama Supreme Court authorities have discussed building a water reservoir on the Indio River. Panama Canal Authority Administrator Ricaurte Vasquez Morales estimates the project would take six years and cost about $1.6 billion. The reservoir would provide the canal with a more stable supply of water during the dry seasons and periods where there is low rainfall. This would allow the canal to not be impacted by weather and would be able to maintain the average number of transits.
Traffic at the LA Port, which handles about 40% of the nation’s container port traffic, saw an inbound traffic increase of 3.4% in a rolling 12-month period ending in July and an outbound traffic increase of 0.7% in the same period. Usually imports peak in the mid-summer to mid-fall as retainers import goods for the holidays and then decline sharply in the winter depending on the timing of the Chinese New Year. Imports were up 47% year over year in July and exports were up 10% year over year. It appears traffic is returning to pre-pandemic patterns, but it was a strong July number for imports as retailers are stocking up for the holiday season.
MSCI is set to remove 60 Chinese securities from its emerging markets index on August 30th, following the removal of 56 in May and 66 in February. MSCI indexes are calculated by taking the market value of each stock, weighting them based on their size, and averaging these values to determine the index value. This adjustment will enhance exposure to India and other Asian countries, such as Taiwan—a trend that has been evident since 2021. Chinese equities have faced challenges in 2024, with investors questioning the resilience of the world’s second-largest economy. Meanwhile, India and Taiwan are making significant strides: India’s expanding economy and Taiwan’s thriving semiconductor sector are boosting their index weightings. As a result, China is trending towards a reduced share in the emerging markets arena. Additionally, MSCI will add seven stocks to its India weighting, including Dixon Technologies India, a major supplier for Samsung Electronics.
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Reuters, L.A. Port Data, Industry Weekly, Morningstar, MarketWatch, Standard & Poor’s, and the Wall Street Journal.
Authors:
Michael McNamara, Analyst
Sam Morris, Analyst